Question

Renegade Industries is considering the purchase of a new machine for the production of latex. Machine A costs $2.86 million and will last for six years. Variable costs are 34% of sales, and fixed costs are $1,971,998 per year. Machine B costs $5.06 million and will last for nine years. Variable costs for this machine are 24% of sales and fixed costs are $1,287,522 per year. The sales for each machine will be $6.1 million per year. The required return is 7 %, and the tax rate is 38%. Both machines will be depreciated to zero on a straight-line basis. Each project will require an increase in inventory of $372,030, an increase in accounts receivable of $719,471, and an increase in accounts payable of $353,015. Assume a salvage value of $786,221 for both machines.

Calculate the NPV for machine A.

Answer 1

Please thumbs up :)